Reuters: US Dollar Report: FOREX-Euro advances on optimism about ECB bond buys

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FOREX-Euro advances on optimism about ECB bond buys Sep 5th 2012, 17:32 Wed Sep 5, 2012 1:32pm EDT * ECB may buy unlimited amount of govt debt-report * Euro zone data gloomy * Aussie skids to eight-week low By Gertrude Chavez-Dreyfuss NEW YORK, Sept 5 (Reuters) - The euro rallied across the board on Wednesday on reports the European Central Bank may purchase more government debt from troubled peripheral nations of the euro zone to stem the region's banking crisis. ECB President Mario Draghi is expected to reveal details of the central bank's bond-buying program after a policy meeting on Thursday. Bloomberg early on Wednesday reported that the ECB may buy an unlimited amount of government bonds of debt-plagued countries such as Spain and Italy. That fuelled buying in the euro against the greenback and commodity currencies such as the Canadian and Australian dollars. The ECB had been expected to be cautious about disclosing the size of its bond buying, given opposition from Germany's central bank. Further adding to the rally was a report from Reuters saying that the ECB was ready to waive seniority status on government bonds it buys under the new program, which would mean private investors would not rank lower in any restructuring of euro zone sovereign debt. {ID:nL6E8K5IA9] "All these reports suggest that the ECB is actually ready to do something," said Sebastien Galy, currency strategist at Societe Generale in New York. In early afternoon trading, the euro was up 0.3 percent at $1.2602, heading back toward a two-month high of $1.2636 touched on Friday. Traders, however said, volume was light on Wednesday, which may be exacerbating price swings. Some market participants, however, were sceptical that the ECB will announce something significant after the Thursday's policy meeting. "The market is setting itself up for a fall," said Michael Woolfolk, senior currency strategist at BNY Mellon in New York. "They are likely to announce unlimited bond buying which sounds good, but there will conditionality attached which will keep the euro zone members from signing up to it." The euro has risen from a two-year low of $1.2040 in late July since Draghi pledged he would do everything to preserve the currency, suggesting possible intervention in bond markets to lower peripheral countries' borrowing costs. He told European lawmakers on Monday that purchases of short-term sovereign bonds to help debt-burdened countries would not breach European Union rules, according to a recording obtained by Reuters. WEDNESDAY DATA Data on Wednesday confirmed French and German services sectors contracted in August, showing the economic rot was spreading well beyond the periphery and raising the chances of the ECB cutting interest rates in coming months. Credit Agricole was forecasting a 25-basis-point cut in the refinancing rate by the ECB on Thursday, which FX strategist Stephen Gallo in London said could knock the common currency briefly lower. "A cut would take some people by surprise and we could see weakness in the euro. But some might believe that is indicative of a very euro-positive outcome from Draghi's press conference and would not want to be short going into that," he said. Beyond the ECB meeting, investors are looking to U.S. non-farm payrolls data on Friday. A weaker-than-expected number could bolster expectations of more quantitative easing by the Federal Reserve, perhaps later this month. The dollar was steady at 78.40 Japanese yen. The Australian dollar hit an eight-week low against the U.S. dollar on speculation the Reserve Bank of Australia will cut interest rates to cushion the economy from falling commodity prices. It was last down 0.2 percent at US$1.0202 The euro rose to its highest against the Swiss franc since May 24. It was last at 1.2030 francs. Against the Australian dollar, the euro gained 0.6 percent to A$1.2360. The euro zone common currency also climbed versus the Canadian dollar, rising 0.8 percent to C$1.2483. Link this Share this Digg this Email Reprints

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